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Video game publisher Ubisoft Entertainment S.A. has won a $13.2 million judgment against MGA Entertainment Inc. in arbitration, a notable amount for a dispute that never went to trial. “It’s accepted knowledge in the legal community that arbitration is usually smaller awards, more tempered and not the big awards you get in front of a jury,” said Stephen Smith, a partner at Los Angeles’ Greenberg Glusker who represented Ubisoft. “This award breaks that mold.” Along with being a significant judgment for arbitration, the decision also underscores the growing importance of the video game industry and its potential for more multimillion-dollar litigation. “It’s a helpful reminder of what’s to come,” said Roxanne Christ, a Los Angeles partner at Latham & Watkins who focuses on intellectual property and technology. “Real money is at stake as the industry matures, and arbitration isn’t the nirvana that everyone presents it as.” The video game industry is still in its adolescence, with little case law to guide it, Christ says. And its stakeholders are still busy making complex and groundbreaking deals. But today’s agreements are tomorrow’s courtroom battles. Brian McCarthy, a Los Angeles attorney at New York-based Skadden, Arps, Slate, Meagher & Flom who recently worked on a $19 billion merger of video game companies, agreed that more litigation is probably on its way. Intellectual property rights, creative forces and money are a volatile combination, he said. “If there is a successful product, it’s not unusual that success has many fathers, and those fathers tend to come out of the woodwork,” he said. “It’s one of the fastest-growing segments of the entertainment industry, and it’s not a mature business.” In 2002, Ubisoft and MGA agreed to a video game license using MGA’s Bratz dolls. That agreement was scheduled to last until 2006, Smith said. At the time of the license, it was early in the life of the dolls, and “we got in early and got a good license at a good price,” he said. But shortly thereafter, in 2003, MGA terminated the license for reasons the parties dispute. Ubisoft attributed it to MGA wanting to get a better deal, especially given the growing popularity of the Bratz line, Smith said. MGA said it was disappointed with the way Ubisoft “lived up to its obligations,” said attorney Douglas Winthrop, the chairman of the litigation department at San Francisco’s Howard Rice Nemerovski Canady Falk & Rabkin. “MGA was extremely frustrated during the course of the relationship with the level of resources devoted to the development, marketing and sales,” Winthrop said. As a result, MGA decided to end the agreement and sued for copyright infringement when Ubisoft kept producing the games. The parties were bound by an arbitration clause and turned to the American Arbitration Association and arbitrator John Fellas, a partner at Hughes Hubbard & Reed in New York who works on international arbitration. During the arbitration, the Ubisoft legal team came up with models, using another game publisher’s revenue to show the money Ubisoft could have made. Under some of the attorneys’ damage theories, they asked for about $20 million, plus fees and expenses. “Bratz just exploded in the U.S. � that’s why the damages are so high,” Smith said. “Ubisoft was suing for lost profit.” After more than four years, the judgment of $13.2 million in lost-profit damages, attorney fees and interest was finalized on Feb. 8. “MGA strongly disagrees with the arbitrator’s decision, but that is his decision and the matter is now over,” Winthrop said. Fellas did not return a call seeking comment.

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